Barry FitzGerald: Looking for a lithium safe haven after an overcooked selloff? You’re welcome
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The lithium sector was the place to be during last week’s carnage on Wall Street. It proved to be a safe haven (apologies to gold) for investors when all else was being barfed up, as one trader described the equities mayhem.
Leading US lithium stocks Albemarle and Livent actually ended the week up 26% and 31% respectively.
Their amazing performance in the sea of weakness was due to full-year earnings upgrades they released during the week after reporting bumper first quarter earnings in response to tear-away lithium prices.
Showing confidence that the good times were set to roll on, Albemarle hoicked its 2022 (calendar) year earnings expectation by 100-140% to $US1.7 billion to $2bn, while Livent settled on a 360% increase to $US360m.
Now it has to be said that the Americans have been a bit slow to switch from term contracts to variable index pricing for their lithium, with the latter more reflective of the lithium shortage and the resultant boom in prices.
So the upgraded earnings forecasts that excited Wall Street despite all the gloom elsewhere was not a game-changer, even if they did alert Wall Street to the impact boom prices are having on lithium earnings.
Still, the share price response in Albemarle and Livent got Garimpeiro wondering if the sell-off in the ASX-listed lithium stocks since April has been overdone. Allkem (ASX:AKE) is down 10% on its early April level, and Pilbara (ASX:PLS) is off by 24%.
Given that Allkem and Pilbara actually closed last week 1.2% and 2.6% higher respectively despite the ASX mirroring Wall Street’s pain, others look to have voted that sell-off has indeed been overdone.
The sell-off has been a result of the general sell-off in equities, and the suggestion that lithium pricing is headed south because demand in the all-important Chinese market is waning because of COVID restrictions.
Albemarle said that demand had been a bit slower in China, with prices coming of a little bit. But the market looks like it will remain “pretty tight” for at least five years. Wow!
It said there would periods of some oversupply, but that growth in the market would gobble up the excess very quickly.
Livent chimed in with an assessment that there will be a “fundamental shortage of lithium available in the market for at least the next couple of years.’’ It noted that while supply has probably grown by four times in the last three or four years, demand is “expanding even more quickly.’’
That is all supportive stuff when it comes to divining the outlook for the ASX lithium stocks and adds weight to the suggestion that the sell-off since early April has been overdone.
Stockhead’s list of stocks with lithium exposure has grown to just shy of 80, and will no doubt continue to grow.
Garimpeiro gave up a long time ago trying to track them all but reckons that given lithium’s almost haven-like status as outlined above, and the setback in ASX lithium stocks since early April, there is some fun to be had in the explorers for leveraged exposure to lithium’s on-going boom conditions.
Calidus (ASX:CAI): Trading at 93c. It has been a strong performer in the lead up to first gold production last week at its new mine in the Pilbara. If the mine goes well, it is in line for another re-rate to higher levels. But it is included here on its recently formed lithium joint venture around Marble Bar.
Drilling of the first lithium-bearing pegmatites – and the region has lots of them – is not far off. There is nothing in the share price for what could come from the lithium hunt. So the company stands as one with two safe havens – gold and lithium (potentially).
Essential (ASX:ESS): Trading at 52.5c. It got as high as 73.5c in April when it was in talks with an unnamed would-be takeover suitor, believed to have been Global Lithium (ASX:GL1). The talks fell over because the price got away from Global. But the interest highlighted the industry’s interest in Essential’s Pioneer Dome project north of Norseman.
According to the company, it is the only lithium resource not yet committed to an offtake agreement.
Red Dirt (ASX:RDT): Trading at 43c. It was trading at 67c a month ago and its story has got better since, with first-pass metallurgical results at its Mt Ida lithium (and gold) project near Menzies coming up trumps.
The company raised $22 million recently so is well funded to follow up impressive maiden drill results from Mt Ida’s pegmatite swarms, leading into a resource estimate and preliminary development study work later in the year.
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.